Strongest Steel Stocks in the Materials Sector

Why steel? Over the last week it's the best performing industry in the Materials sector, and the Material Select Sector SPDR (ARCA:XLB) moved up 3.42% over the last week. The only stronger sector was Industrials, moving up 3.97%. So with the sector moving strongly, here are four large (over $2B in market cap.) steel stocks to keep an eye on.

United States Steel (NYSE:X) looks to have cleared resistance which had kept the price below $19.70 since April. With the price having formed a base over the last several months, there is room to run on the upside. The price target is $23, at which point further resistance is expected. The primary concern at this point is that the upside breakout is false. While that doesn't appear to be the case, if the price drops back $19.40 that would be a warning sign this stock isn't quite ready for a substantial move to the upside just yet. The series of higher lows since April does indicate some buying pressure though, so even if the stock does pullback it still looks like a long to me as long as the price stays above $17.80--the recent swing low.

Vale (NYSE:VALE) has been marching higher since July, with the trend showing periods of marked acceleration. This sort of momentum can't last for long, so I am more inclined to wait for a pullback than to get in as the price is jumping up. Resistance is likely between $17.10 and $17.35, at which point there is potential for entry on the pullback. I like the stock between $15. and $15.50. This is still above the upward sloping trendline, and $14.20 (recent swing low) can be used as a stop. Assuming the stop isn't pierced and the uptrend continues following the pullback, $17.75 is the eventual upside target for this setup.

Cliffs Natural Resources (NYSE:CLF) also looks to have formed a base over the last several months. Having rallied from through July to early August the stock slumped a bit in mid-to-late August, but found support at $20.75. It is now heading back to test the August high at $25.95. I expect this level to break, and beyond that there is very little resistance until $31, followed by $36. Picking it up near the September 10 close at $23.79 with a stop just below $20.75 provides an attractive risk/reward ratio.

CompanhiaSiderurgicaNacional (NYSE:SID) has been another strong runner to the upside since July, and is up 11.61% over the last week according to the StockCharts.com, making it the strongest performer over the last week. While the current rally is aggressive, it is dwarfed in comparison to the massive slide this stock has seen over the last two years. In 2012 the stock was trading above $10, and recently hit $2.38 in July. So it is too early to tell if this is a full fledged reversal, or just a significant correction in the downtrend. Two potential entry points are a pullback to near $3.70 (aggressive trend line), or wait for a larger pullback to $3.20 to $3.00. A stop can be placed at $3.50 for the former entry price and $2.80 for the latter entry. If the price stays within the trend channel for one more swing higher, then the price target is $4.50.

The Bottom Line
These steel stocks have been through some rough times, but recently have experienced aggressive buying. Each chart is slightly different, presenting different opportunities and risk/reward profiles. Use a stop loss to manage risk because until these uptrends become more established--relative to the prior downtrends--longer-term forces may again weigh on the price. For now though, there looks to be opportunity over the coming weeks and potentially months.

At the time of writing, Cory Mitchell did not own shares in any of the companies mentioned in this article.